Putting the Brakes On

For the first time since 2001, another recession year, the Chain Store Age Big Builders Survey shows a decline in new-store growth. Our survey of 25 leading retailers, covering all categories, shows that those retailers estimate that they will open 778 fewer stores in 2008 than they opened last year.

Capital Expenditures (000 omitted)

Rank

Company

2007

2008

1

Wal-Mart (U.S. discount stores and supercenters)

$9,100,000

$6,200,000

2

Lowe’s

4,400,000

4,200,000

3

Target Corp

4,369,000

3,800,000

4

Home Depot

3,600,000

2,400,000

5

CVS

1,800,000

2,000,000

6

Walgreen

1,700,000

1,900,000

7

Costco

1,385,699

1,598,571

8

Supervalu

927,000

1,273,000

9

Kohl’s

1,500,000

1,200,000

10

Kroger

2,060,000

1,115,000

11

Safeway

1,768,700

1,007,300

12

J.C. Penney

1,243,000

1,000,000

13

Macy’s

1,105,000

1,000,000

14

Sam’s Club

700,000

1,000,000

15

Delhaize America

729,300

775,000

16

Best Buy

797,000

750,000

17

Publix

683,290

658,300

18

Limited Brands

749,000

600,000

19

TJX

526,987

575,000

20

Whole Foods Market

530,000

575,000

21

Sears

570,000

570,000

22

Gap

682,000

480,000

23

Abercrombie & Fitch

403,345

410,000

24

Staples

470,377

405,663

25

Rite Aid

336,728

364,400

TOTAL

$42,136,426

$35,857,234

Source: Company reports/Chain Store Age research

New Square Footage

Rank

Company

2007

2008

1

Wal-Mart (U.S. discount stores and supercenters)

26,000,000

23,000,000

2

Target Corp.

20,532,000

20,184,000

3

Lowe’s

17,748,000

13,920,000

4

Walgreen

8,163,500

7,975,000

5

Kohl’s

9,744,000

6,525,000

6

Kroger

4,828,000

5,440,000

7

Best Buy

4,185,300

4,550,000

8

Home Depot

11,880,000

4,428,000

9

Dollar Tree

2,712,500

4,218,750

10

Dollar General

4,588,500

4,140,000

11

Costco

4,200,000

3,780,000

12

Publix

1,997,600

3,150,000

13

PetSmart

2,645,000

2,576,000

14

Family Dollar

2,822,000

2,567,000

15

Ross

2,728,000

2,395,000

16

Bed Bath & Beyond

2,400,000

2,250,000

17

Delhaize America

3,325,800

2,024,400

18

Sam’s Club

2,000,000

2,000,000

19

Dick’s Sporting Goods

1,840,000

1,760,000

20

Aldi

850,000

1,700,000

21

Staples

2,040,000

1,700,000

22

Supervalu

1,620,000

1,700,000

23

Tractor Supply

1,468,500

1,501,500

24

CVS

1,512,320

1,479,680

25

TJX

1,350,000

1,200,000

TOTAL

143,181,020

126,164,330

Source: Company reports/Chain Store Age research

New Stores

Rank

Company

2007

2008

1

Walgreen

501

550

2

Dollar Tree

342

208

3

Family Dollar

300

205

4

Dollar General

365

200

5

Wal-Mart (U.S. discount, supercenters, and grocery)

218

191

6

CVS

275

186

7

AutoZone

163

174

8

O’Reilly Automotive

190

150

9

7-Eleven

106

130

10

Best Buy

164

124

11

Genesco

229

124

12

Lowe’s

153

120

13

Target Corp.

118

116

14

Advance Auto Parts

175

115

15

Gap

214

115

16

PetSmart

115

112

17

Abercrombie & Fitch

99

110

18

Brown Shoe

110

110

19

Aldi

50

100

20

Staples

120

100

21

Tractor Supply

89

91

22

Chico’s

143

89

23

Hibbett Sporting Goods

84

85

24

Kroger

71

80

25

Foot Locker

117

76

TOTAL

4,511

3,733

Source: Company reports/Chain Store Age research

In 2007, the 25 leading retailers opened 4,511 new stores. In 2008, plans call for opening 3,733. The difference of 778 stores translates to a 17% decline.

New square footage brought to market followed along, falling from 143 million new sq. ft. last year to an estimated 126 million sq. ft. this year, a decline of approximately 12%.

Capital spending fell also, from approximately $42.1 billion in 2007 to $35.9 billion in the estimates for 2008, a 15% decline.

The slowdown in expansion affected nearly the entire retail industry. Discount stores went from 1,632 new stores in 2007 to 1,192 stores in 2008.

The drug store category was not immune to the slowdown, with 772 new stores estimated to open in 2008 compared to 834 last year. CVS opened 186 stores in 2008 and 275 in 2007. Walgreens was poised to end 2008 with 550 new stores, compared to 501 last year. New York City regional chain Duane Reade opened 15 stores in 2008, compared to 10 in 2007. Rite Aid followed the pattern of the other categories, cutting its new-store openings virtually in half.

Only the supermarket category beat the trend, opening 555 compared to 424 in 2007. Aldi went from 50 new stores in 2007 to 100 stores this year. Kroger beat last year’s total of 71, with 80 new stores this year. Publix opened 70 stores this year, compared to 44 in 2007. Safeway opened 20 new stores this year compared to 13 last year. Supervalu’s total went up to 75 compared to 27 last year. Wal-Mart’s Neighborhood Markets added 23 stores this year, vs. 20 in 2007.

Food Stores Capital Expenditures (000 omitted)

Rank

Company

2007

2008

1

Supervalu

$927,000

$1,273,000

2

Kroger

2,060,000

1,115,000

3

Safeway

1,768,700

1,007,300

4

Delhaize America

729,300

775,000

5

Publix

683,290

658,300

6

Whole Foods Market

530,000

575,000

7

Winn-Dixie

218,000

250,000

8

Harris Teeter

205,500

192,200

9

A&P

122,900

125,000

TOTAL

$7,244,690

$5,970,800

Source: Company reports/Chain Store Age research

Food Stores New Square Footage

Rank

Company

2007

2008

1

Kroger

4,828,000

5,440,000

2

Publix

1,997,600

3,150,000

3

Delhaize America

3,325,800

2,024,400

4

Aldi

850,000

1,700,000

5

Supervalu

1,620,000

1,700,000

6

Wal-Mart Neighborhood Markets

800,000

1,000,000

7

Safeway

585,000

900,000

8

Whole Foods Market

1,076,700

790,500

9

Harris Teeter

874,000

598,000

10

A&P

130,350

100,000

TOTAL

16,087,450

17,402,900

Source: Company reports/Chain Store Age research

Food Stores New Stores

Rank

Company

2007

2008

1

7-Eleven

106

130

2

Aldi

50

100

3

Kroger

71

80

4

Supervalu

27

75

5

Publix

44

70

6

Delhaize America

69

40

7

Wal-Mart Neighborhood Markets

20

23

8

Safeway

13

20

9

Whole Foods Market

21

15

10

A&P

3

2

TOTAL

424

555

Source: Company reports/Chain Store Age research

But that’s it. Beyond the stores that sell necessities—grocery stores and drug stores—and the stores that sell at sharp discounts, there are no bright spots.

The Home Depot and Lowe’s together opened 161 new stores this year, compared to 263 in 2007. Specialty hard line stores, such as AutoZone, Hibbett Sporting Goods, Michaels and seven others, dropped from 1,100 new stores last year to 961 new stores this year.

Specialty Hard Lines Capital Expenditures (000 omitted)

Rank

Company

2007

2008

1

Best Buy

$797,000

$750,000

2

PetSmart

294,437

285,000

3

AutoZone

224,474

243,594

4

Circuit City

242,000

226,200

5

Williams-Sonoma

212,000

220,000

6

Bed Bath & Beyond

358,210

212,000

7

Barnes & Noble

196,500

210,000

8

O’Reilly Automotive

282,700

195,000

9

Advance Auto Parts

210,600

190,000

10

Tractor Supply

83,986

105,000

11

Borders

142,700

80,000

TOTAL

$2,901,907

$2,636,794

Source: Company reports/Chain Store Age research

Specialty Hard Lines New Square Footage

Rank

Company

2007

2008

1

Best Buy

4,185,300

4,550,000

2

PetSmart

2,645,000

2,576,000

3

Bed Bath & Beyond

2,400,000

2,250,000

4

Dick’s Sporting Goods

1,840,000

1,760,000

5

Tractor Supply

1,468,500

1,501,500

6

Barnes & Noble

806,000

1,040,000

7

AutoZone

1,043,000

1,024,000

8

O’Reilly Automotive

673,200

1,020,000

9

Advance Auto Parts

1,295,000

805,000

10

Cabela’s

1,300,000

320,000

TOTAL

17,656,000

16,846,500

Source: Company reports/Chain Store Age research

Specialty Hard Lines New Stores

Rank

Company

2007

2008

1

AutoZone

163

174

2

O’Reilly Automotive

190

150

3

Best Buy

164

124

4

Advance Auto Parts

175

115

5

PetSmart

115

112

6

Tractor Supply

89

91

7

Hibbett Sporting Goods

84

85

8

Bed Bath & Beyond

75

70

9

Michaels

45

40

TOTAL

1,100

961

Source: Company reports/Chain Store Age research

The biggest loser: the specialty apparel category, which in our survey included Abercrombie & Fitch, Brown Shoe, Charming Shoppes, Chico’s and six others. The nine retailers in the category opened a total of just 744 stores this year. Last year, they opened 1,159 stores.

The same pattern holds true for capital spending.

The Truth May Be Worse Yet

Our survey was conducted during November, as retailers and retail real estate developers were trying to shake off the cataclysm that struck in October. Cataclysm? Think about what happened to retail real estate investment trusts (REIT) in October. Through the first nine months of 2008, the FTSE NAREIT Equity REIT Index, which tracks REIT stock performance, showed that retail REIT stocks declined by about 2.5%. People were worried, but then a 2.5% dip wasn’t all that bad.

Home Centers Capital Expenditures (000 omitted)

Rank

Company

2007

2008

1

Lowe’s

$4,400,000

$4,200,000

2

Home Depot

3,600,000

2,400,000

TOTAL

$8,000,000

$6,600,000

Source: Company reports/Chain Store Age research

Home Centers New Square Footage

Rank

Company

2007

2008

1

Lowe’s

17,748,000

13,920,000

2

Home Depot

11,880,000

4,428,000

TOTAL

29,628,000

18,348,000

Source: Company reports/Chain Store Age research

Home Centers New Stores

Rank

Company

2007

2008

1

Lowe’s

153

120

2

Home Depot

110

41

TOTAL

263

161

Source: Company reports/Chain Store Age research

At the end of October, however, retail REIT stocks had declined 40.6% for the year. That’s not a misprint. That’s what happened in October: Retail REIT stocks moved from 2.5% down for the year to 40.6% down for the year—in 30 days.

It wasn’t a fluke confined to retail real estate, either. Every real estate category took a beating.

Before October, multifamily REIT stocks had risen 17.1% for the year. During October, those stocks fell 27.6% and ended down 10% for the year by the end of the month. Office REIT stocks were down 2% for the year before October and 32.1% for the year after October. Industrial REITs got shellacked. Down 12.5% for the year before October, industrial REIT stocks ended down 62.8% after October. October, of course, also brought major declines to the general stock market.

After all of that carnage,Chain Store Age started the Big Builders Survey. It’s important to keep that in mind, because retailers made most of their estimates for the remainder of 2008 based on the slow going of the first three-quarters of the year, not after the October earthquake. In short, when retailers and REITs issue their annual reports covering 2008, the year may look worse than it does now.

Data on construction spending collected by the U.S. Census Bureau show a pattern similar to the Big Builders Survey’s findings, while confirming that October was indeed a game changer. “The Census Bureau numbers suggest that someone slammed on the brakes abruptly,” said Kenneth D. Simonson, chief economist with the Arlington, Va.-based Associated General Contractors of America.

Specialty Apparel Capital Expenditures (000 omitted)

Rank

Company

2007

2008

1

Limited Brands

$749,000

$600,000

2

Gap

682,000

480,000

3

Abercrombie & Fitch

403,345

410,000

4

American Eagle Outfitters

250,407

250,000

5

Ross

236,100

227,000

6

Foot Locker

148,000

159,000

7

Chico’s

202,000

125,000

8

Pacific Sunwear

106,000

85,000

9

Talbots

85,000

75,000

TOTAL

$2,861,852

$2,411,000

Source: Company reports/Chain Store Age research

Specialty Apparel New Square Footage

Rank

Company

2007

2008

1

Ross

2,728,000

2,395,000

2

Stage Stores

846,000

1,008,000

3

Brown Shoe

798,000

798,000

4

Gap

2,568,000

731,000

5

Abercrombie & Fitch

680,680

703,120

6

Charming Shoppes

607,700

265,500

7

Stein Mart

518,000

222,000

8

Chico’s

286,000

116,000

TOTAL

9,032,380

6,238,620

Source: Company reports/Chain Store Age research

Specialty Apparel New Stores

Rank

Company

2007

2008

1

Genesco

229

124

2

Gap

214

115

3

Abercrombie & Fitch

99

110

4

Brown Shoe

110

110

5

Chico’s

143

89

6

Foot Locker

117

76

7

Talbots

75

46

8

Charming Shoppes

103

45

9

Christopher & Banks

69

29

TOTAL

1,159

744

Source: Company reports/Chain Store Age research

The Census Bureau categorizes retailers differently, but the trend is still unmistakable.

In the category of general merchandise stores, construction spending was up by one-half of a percent during the one-month period from September 2008 to October 2008. In short, October this year was a little better than September of this year. But spending for construction by general merchandise retailers in October 2008 plummeted by 29% compared to October 2009. Don’t forget, October is when new stores have to come online to catch onto holiday sales. So there should be a lot of spending in October, especially compared to September.

Discount Stores Capital Expenditures (000 omitted)

Rank

Company

2007

2008

1

Wal-Mart (U.S. discount stores and supercenters)

$9,100,000

$6,200,000

2

Target Corp

4,369,000

3,800,000

3

Costco

1,385,699

1,598,571

4

Kohl’s

1,500,000

1,200,000

5

J.C. Penney

1,243,000

1,000,000

6

Macy’s

1,105,000

1,000,000

7

Sam’s Club

700,000

1,000,000

8

TJX

526,987

575,000

9

Sears

570,000

570,000

10

Staples

470,377

405,663

TOTAL

$20,970,063

$17,349,234

Source: Company reports/Chain Store Age research

Discount Stores New Square Footage

Rank

Company

2007

2008

1

Wal-Mart (U.S. discount stores and supercenters)

26,000,000

23,000,000

2

Target Corp.

20,532,000

20,184,000

3

Kohl’s

9,744,000

6,525,000

4

Dollar Tree

2,712,500

4,218,750

5

Dollar General

4,588,500

4,140,000

6

Costco

4,200,000

3,780,000

7

Family Dollar

2,822,000

2,567,000

8

Sam’s Club

2,000,000

2,000,000

9

Staples

2,040,000

1,700,000

10

TJX

1,350,000

1,200,000

TOTAL

75,989,000

69,314,750

Source: Company reports/Chain Store Age research

Discount Stores New Stores

Rank

Company

2007

2008

1

Dollar Tree

342

280

2

Family Dollar

300

205

3

Dollar General

365

200

4

Wal-Mart (U.S. discount and supercenters)

198

168

5

Target Corp.

118

116

6

Staples

120

100

7

Kohl’s

112

75

8

Fred’s

45

22

9

Sam’s Club

25

21

10

Big Lots

7

5

TOTAL

1,632

1,192

Source: Company reports/Chain Store Age research

Building-supply stores spent 2.7% more in October 2008 than in September 2008, but 29% less this October compared to last October. A category labeled “other stores” spent 9.7% less from September to October of this year, and 22% less in October 2008 than in October 2007.

Drug stores followed the pattern of most other categories in the Big Builders Survey. Spending on construction rose 9.2% from September to October this year, and fell 4.3% in October 2008 compared to October 2007.

What specifically happened in October? Who put on the brakes? Everyone. Lenders stopped lending and developers stopped developing.

“Developers either had the credit window slammed on their fingers or were rethinking assumptions about the probable success of a project,” Simonson said. “The dismal figures on consumer spending have to lead to a conclusion that a project started today would probably sit around unoccupied.”

Simonson went on to say that the consensus outlook among economists calls for further declines through the second quarter of 2009, with a rebound thereafter.

“There is no agreement about whether the pick-up will be sharp or gradual,” he added. “And keep in mind that what has happened to the economy is unprecedented, and I’m not sure that anyone really knows how to forecast a recovery.”

Is there any good news?

“The price of materials is dropping,” Simonson said. “There are lots of contractors available to execute projects. Anyone with cash will be well-rewarded in terms of lower costs and faster delivery times.”

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